Tata Motor’s Innovative Processes Valuation Report

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Executive Summary

This paper is an innovation report for Tata Motors. It is divided into six sections. The first one is the introduction part, which provides a background to the study and sets the stage for the rest of the paper. The second segment is the innovation theory review, which explores key theoretical underpinnings of the study by examining the role of the diffusion of innovations theory and the five-stage high involvement framework in Tata’s innovation systems. An analysis of the internal factors of the firm that influence its innovation processes are explained in the third section of the paper. It includes an examination of the company’s leadership processes (participative), organisation structure (flat), and culture (collectivism). A comparative review of the firm’s external strategy demonstrates that it pursues an innovation strategy through the TGIF platform and subscribes to a customization philosophy to manage market forces. Collectively, these analyses pave the way for the recommendations section, which suggests that Tata’s innovation processes should focus on the science of delivery and not on the art of discovery. The last section of the report summarises these findings in the conclusion part.

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Introduction

Tata Corporation was started in the mid-1940s and has since grown to be one of India’s largest automobile companies. Its presence in the commercial automobile space is more profound than its private automobile business (Thoppil 2017). According to Shah (2014), Tata is the second largest bus manufacturer in the world and among the top five truck producers in the automotive market (Thoppil 2017). In 2004, the Indian conglomerate expanded its global outreach by having its business listed on the New York Stock Exchange (Mello 2014). Its consolidated revenues per year are in excess of $20 billion, elevating it to be among the most profitable automobile enterprises in the world (Thoppil 2017). Nonetheless, today, Tata is facing many challenges related to increased competition in the automotive industry. Indeed, more than ever before, the Indian firm is under intense pressure to deliver cutting-edge products and services. This need has elevated the importance of innovation in the firm’s operations.

This report strives to investigate Tata Motor’s innovative processes with the aim of relating its specific tenets of innovation to existing theories, models and case studies associated with the creative process. This report includes a review of both the company’s internal factors (related to employees) and external issues (related to the environment). The analysis of internal factors includes (but is not limited to) discussions relating to its leadership style, cultural inclination, and organisational structure. The external market analysis also includes (but is not limited to) the firm’s strategic direction and the influence of market forces on the business. The information that will be obtained from this review will be used to make recommendations for improving the firm’s innovation processes at the end of the report. However, before delving into these details, it is first important to understand the theoretical underpinning of the investigation.

Innovation Theory

Different theories have been used to explain innovation processes in organisations. However, the diffusion of innovation theory emerges as the most commonly cited. It describes how ideas are spread among a group of people or employees in the workplace (Valente et al. 2015). It also predicts how they would receive or reject innovative ideas when they are introduced (Valente et al. 2015). The theory is relevant to this analysis because, at Tata Motors, innovation is adopted through human interactions and the development of interpersonal networks (Shah 2014). According to the diffusion of innovation theory, this type of creativity management system represents a binomial expansion model because it emerges from two or more people sharing ideas and expanding the same to other members of their team (Valente et al. 2015). In this context, innovation is considered to be a subjective concept because some people (early adopters) have more of it than others (late adopters) in the same system (Archibald & Clark 2014).

The underlying drivers of innovation management in growth markets are informed by technology adoption strategies (Archibald & Clark 2014). From this premise, the diffusion of innovation theory suggests that there are five categories of people who are involved in the innovation lifecycle (Archibald & Clark 2014). They include techies, visionaries, pragmatists, conservatives and sceptics (Archibald & Clark 2014). Techies are usually considered the main innovators because they subscribe to the motto of “just do it” (Raynard 2017). The second group of employees is the “early adopters” and they often lead the majority of workers because of their visionary foresight (Archibald & Clark 2014). The “early majority” comprises the third group of technology adopters and they are typically pragmatists who like to stick with the majority group. Conservatives, who are the fourth group of adopters, often like to follow what is proven to work (Archibald & Clark 2014). They make up the group of “late majority” adopters, while the last type of employees is comprised of sceptics who would probably oppose the innovation introduced (Raynard 2017). Tata Motors strives to encourage most of its employees to be innovators. In other words, it does not limit creativity to a select group of workers; instead, it prefers to instil a “just do it” attitude among its employees, which is synonymous with the “early adopters.”

Generally, there are different models and techniques used to understand the main sources of innovation as well as innovation management systems in a company. According to Raynard (2017), the main sources of innovation are brainstorming, lateral thinking and mapping. As will be highlighted in subsequent sections of this report, the innovation model of Tata Motors embraces a lateral thinking framework. Another model that has been used to understand innovation management systems is the five-stage high involvement framework (Valente et al. 2015). Its five stages include natural high involvement innovation (associated with problem-solving), structured high involvement creativity (associated with formal problem-solving mechanisms), formal deployment of strategic goals, proactive/empowered, and full high involvement innovation, which involves shared learning (Valente et al. 2015; Raynard 2017). As will be evident in subsequent sections of this document, Tata Motor’s innovation system is more attuned to the fourth stage of the creative management model – pro-active/empowered. An analysis of the company’s internal factors appears below.

Analysis of Internal Factors

Leadership

According to researchers such as Hossain (2017) and Doval (2015), Tata Motor’s leadership style is designed to control its global operations. As such, its leadership philosophy is participative and is based on five functional units. They are finance, engineering, strategy, human resource, legal, and communications (Hossain 2017; Doval 2015). The company’s business sectors all fall under these five functional units. Most of the firm’s leaders are dynamic and agile individuals who can work in different departments. Their flexibility has helped in fostering the company’s innovation strategy because managers are always open to listening to new ideas and since they are equipped to understand the workings of different departments, they have a “big picture” perspective of how one aspect of innovation could broadly complement the organisation’s processes in totality (Raynard 2017).

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The flexibility of Tata’s leaders is further supported by the presence of both formal and informal organisational structures which allow different cadres of employees to share their innovative ideas with their colleagues within the participative leadership framework. This leadership structure is partly supported by the presence of flat organisational structures, which have been established at different divisional levels (Raynard 2017). According to Francis (2013), this leadership style promotes a culture of excellence in the same space. He adds that it not only supports the innovation process (as it gains shape) but also gives it meaning as it spreads to other parts of the business’s operations (Francis 2013).

Organisation Structure

Tata Motors has a flat organisation structure. This framework thrives in the organisation because it aligns with the organisation’s quest to leverage its people power to take advantage of existing market opportunities and to improve its organisation’s competitiveness (Mello 2014). As part of its flat organisation structure, Tata has identified a group of vibrant and energetic young men and women to drive the innovation agenda (Frisk 2014). These employees have been recruited from different assessment centres and their job description has been to act as “creative leaders” (Panibratov 2017).

Unlike other automotive companies that rely on technology to support their creative processes, Tata Motors has a record of relying on its people more than all other factors of production (Francis 2013). Its flat organisational structure has enabled it to be successful in this regard. In line with this framework, it has spent a lot of time and resources to identify engineers and strategic leaders that would guide innovation processes (Frisk 2014). After identification, they are provided with the resources they need to work. This management approach is responsible for the development of the Tata Engineering Centre, which has more than 3,000 professionals (Panibratov 2017). The facility is expected to pioneer new products and technologies that would revolutionise how the company does its business. The creative team has been reporting excellent results since it was first incepted in the mid-1960s (Das 2016; Mello 2014; Panibratov 2017).

Culture

According to several research studies, cultural factors play a pivotal role in fostering innovation (Francis 2013). Sharma and Jha (2016) suggest that several tools could be used to either foster or stifle innovation in a company. They include vertical relationships, communications structures, the availability of tools and resources, and accounting practices. In line with its informal communication channels, Tata’s organisational culture is based on collectivism and it enables the easy flow of information between the top and middle-level management. It also provides an opportunity for lower level employees to gain access to higher level workers and share their ideas or creative opinions about different organisational processes (Bhat 2013). The exchange of information at Tata Motors is subject to a code of conduct in the firm, which assigns responsibilities to different cadres of employees with the goal of promoting group activity (Sharma & Jha 2016). In this regard, collectivism is supported throughout all cadres of management and is in line with studies conducted by Deresky and Christopher (2015) which show that Indian firms tend to embrace a group ideology in their management of organisational activities.

Tata Motors believes that this type of culture is critical in incubating new ideas and in promoting positivity within the organisation. This culture has informed the development of an enterprise resource plan (ERP) which acts as a catalyst for all functional departments within the company to share ideas (Venkatesan 2013). The units are linked through an intranet connection, which allows for the instant sharing of ideas (Deresky & Christopher 2015). Its operability means that employees are connected at all levels of operation. The overall organisational culture is also premised on revolutionising the automobile industry and it is demonstrated through Tata’s acquisition of Jaguar and Land Rover and the sustenance of their success in the last couple of years (Truett 2017). The development of the world’s cheapest car (NANO car) also demonstrates that the revolutionary spirit is alive in the organisation.

Analysis of External Factors

Strategy

As part of its response to growing global competition in the automotive industry, Tata has redesigned its corporate strategy to embed innovation in its operational processes (Deresky & Christopher 2015). This feature has been introduced in the company’s product strategy to differentiate it from rivals in the industry. Nonetheless, it is important to note that Innovative products are not only concentrated in the company’s Indian division, but also in other subsidiaries, including Jaguar Land Rover and Tata Technologies (Truett & Burke 2017). Currently, there are more than 60 innovative projects being undertaken by Tata Motors and they are expected to rake in more than $1.1 billion in annual revenues after implementation (IIFL 2017). The company also estimates that it will be able to impact the lives of more than 35 million people globally within a period of five years or less (Francis 2013).

It is important to acknowledge that the innovations mentioned above are products of a ten-year corporate strategy that Tata Motors has used to infuse innovation in its business processes (Francis 2013). According to the company’s managers, doing so has not been easy, relative to the sheer size of the conglomerate’s operations (Truett & Burke 2017). Nonetheless, in line with this goal, it spends about $2.6 billion in research and development alone (this figure accounts for about 2% of the company’s turnover) (Sangani 2015). Such a huge budget allocation came from a realisation by the company (about a decade ago) that it needs to incorporate a culture of innovation in its corporate strategy (Truett & Burke 2017). Since then, there has been the growth and development of the Tata Group Innovation Forum (TGIF), which was an idea of the company’s former Chairman Raman Tata (Sangani 2015).

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Based on the above developments, TGIF has emerged as an acronym for a philosophy in Tata’s organisation strategy which aims to create, nurture, and encourage a climate of creativity. A key tenet of this business strategy has been the centralization of innovation processes. However, it has been difficult to implement it in the company’s organisation structure that accords some sense of financial and creative independence to different business segments (Truett 2013). By understanding these limitations, Tata Motors focuses its business strategy on the need to provide tools and resources that it could use to encourage collaboration and interaction among employees. The TGIF model has helped to shape the company’s strategy by identifying specific strategic areas that it needs to focus on in the next few years. They include eCommerce, and technology (Truett & Burke 2017). Overall, the company’s goal has been to encourage the multiplicity of ideas within its employee group.

Market Forces

A key attribute of Tata’s innovation plan has been the multiplicity of strategies, which premises on a customisation framework that strives to appeal to the uniqueness of different market segments. For example, the business strategies adopted in Sri Lanka are not the same ones adopted in Bangladesh and those embraced in Vietnam are similarly different from those being pursued in the UK (IIFL 2017). The strategy adopted in its Indian domestic market focuses on promoting the production of profitable cars and phasing out those that have been unsuccessful (IIFL 2017). This strategy stems from the realisation that the most profitable business segment of Tata Motors is the success of Jaguar Land Rover, which has had global success, especially after the sale of some of its newest models (Truett 2018). Based on these insights, Tata Motors adopts a diversified innovation strategy that addresses the different market forces in key locations around the world. Stated differently, the company’s creative strategy is not a one-size-fits-all model.

Recommendations

According to Wessel (2012), big corporations like Tata Motors should be more concerned about the science of delivery and not on the processes associated with the art of discovery. This recommendation comes from the understanding that most of them are not designed to accommodate strong innovation processes because their systems are attuned to promote efficiency as opposed to creativity. Based on the findings of this paper, Tata Motors appears to be more concerned about the art of discovery as opposed to the science of delivering innovation. The science of delivery should be the main theme that guides the organisation’s innovation processes because it is a giant multinational and the application of an innovation strategy in the wrong market could defeat the purpose of coming up with the innovation in the first place.

In an unrelated sphere of analysis, the findings of this paper show that most of the innovative strategies adopted by Tata Motors seem to be largely attuned to creating a radical shift in the bottom-tier of the automobile market. For example, evidence highlighted on the company’s website shows that its innovation strategy has been centred on improving its market performance in Asia (IIFL 2017). In this regard, it is “withdrawn” from the mainstream automotive industry, which is dominated by other major companies such as Daimler Chrysler, BMW, Jeep and the likes. It is (almost) as if the firm is unwilling to compete with the top-tier rivals in the industry. This laxity should be checked and innovation should be the tool to do so (Lim, Han & Ito 2013). This recommendation is in line with some of the views highlighted by Gerstner (2003) in a book titled, “Who Says Elephants Cannot Dance?” The researcher suggests that giant conglomerates such as Tata Motors should always be “ready to fight” with its competitors if they want to stay at the top or be at the helm of their respective industries.

This recommendation was made in reference to IBM, which was haemorrhaging money to the benefit of smaller companies which could produce better products more efficiently and cheaply (Gerstner 2003). Tata Motors is in the same predicament because few automobile companies could rival its “conglomerate status” (Vellequette 2016). However, the firm is not fighting hard enough to be at the top and it should refocus its innovation management systems to compete with market leaders in its business segment as opposed to introducing new innovations in the lower end of the industry. Doing so would increase its profitability and brand recognition in the long run.

Conclusion

The findings highlighted in this study demonstrate that Tata Motors has a broad view of innovation because its managers believe that, although the innovation concept largely refers to the introduction of new and radical ideas in the firm, it could be applied in several other areas in the company. The company has used a participative leadership style and a flat organisational structure to foster this idea. In line with this framework, it has spent a lot of money innovating or producing new products that would meet different customer needs and requirements.

Based on the above views, it is possible to deduce that the innovation strategy adopted by Tata Motors is people-oriented and not process-oriented. Regarding its global strategy, the Indian conglomerate is also hooked on its “people strategy” because as it familiarises itself with new cultures, it is also nurturing “creative leaders” in different countries around the globe. While this innovation model has guaranteed some level of success for the organisation, it is important for Tata Motors to reorient its strategy to compete with the dominant players in the automotive industry. This is because its current innovation model is largely focused on the lower tier market, which cannot guarantee sustainable profitability in the long run. In line with the findings of the recommendation section, doing so will require the firm to focus more on the science of delivery as opposed to the art of discovery. In other words, it needs to deliver its innovation strategy to the most profitable segments of the market.

Reference List

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